Concession vs Franchise: know-how, qualification criterion

In a decision of 13 June 2025, the Paris Court of Appeal ruled on the conditions for reclassifying a concession contract as a franchise contract, in particular with regard to the qualification of know-how. This decision also recalls the importance of compliance with the forms provided for in the contract in terms of the acquisition of the termination clause.

Facts

In February 2019, the company TDMF – licensor – concluded with Mr HV acting in the name and on behalf of the company TTFI – concessionaire – a contract entitled “exclusive license for regional development concession contract” under which it granted him for the department of Rhône the development, recruitment, animation, and management of its regional network of commercial agent.

In October 2021, the dealer terminated the contract.

On 7 January 2022, the Licensor summoned the Concessionaire before the Commercial Court of Paris.

Dismissed part of its applications at first instance, the grantor appealed the decision of the court.

The Court of Appeal, in the context of this appeal, ruled in particular on the nature of the contract binding the parties, rejecting the qualification of franchise contract (1), as well as on the faulty nature of the termination of the latter by the concessionaire (2).

Failure to reclassify the concession contract as a franchise contract

The concessionaire intended to have the concession contract reclassified as a franchise contract by arguing that:

• the contract provided for the provision of distinctive signs;
• it provided for the transfer of know-how that would have constituted the consideration for the initial flat-rate fee;
• it provided for the provision of ongoing assistance;
• the licensor presented itself as a franchise;
• the licensor would have sought to avoid bearing the obligations relating to the franchise agreement, in particular relating to the support of the franchisee, by artificially calling the agreement “transfer agreement“.

The Court of Appeal, in accordance with Articles 1188 and 1189 of the Civil Code, does not uphold this argument.

As a reminder, Article 1188 of the Civil Code which provides that: “The contract shall be interpreted according to the common intention of the parties rather than stopping in the literal sense of its terms.

When this intention cannot be detected, the contract shall be interpreted according to the meaning that would be given to it by a reasonable person placed in the same situation. 

Article 1189 of the Civil Code provides that: “All the clauses of a contract are interpreted in relation to each other, giving each one the meaning that respects the coherence of the entire act.

When, with the common intention of the parties, several contracts contribute to the same transaction, they are interpreted according to it. 

It notes that the dealer does not define the know-how that would have been transmitted to him, or that should have been transmitted to him.

In particular, the Court held that the business software defined in the contract did not correspond to the know-how required in a franchise agreement.

The judges consider that it is clear from the contractual stipulations that “the parties expressly agreed to exclude from the agreement the transfer of know-how that did not exist on the day of the signing of the contract sinceit had not been sufficiently experienced and had to be developed and formalized“.

According to the court, the fact that the dealer is presented as a franchise in an online publication or participates in the “Franchise expo” fair for recruitment purposes is not likely to modify the legal qualification of the contract.

Consequently, as the concessionaire does not demonstrate the existence of know-how meeting the conditions of the franchise agreement, its request for reclassification is rejected by the Paris Court of Appeal

Characterization of the wrongful termination by the dealer

The grantor intended to obtain the characterization of a wrongful termination at the initiative of the concessionaire on the grounds that it had been carried out without respect for the contractual procedure, and in particular without the sending of a prior formal notice by the concessionaire.

The Paris Court of Appeal upheld the concession contract, and articles 1225 and 1344 of the Civil Code, upheld the grantor’s argument and qualified the concessionaire’s performance as abusive since it did not comply with the forms of the resolutory clause (a) or those of the Civil Code (b).

Failure to comply with contractual forms

The court notes that the concessionaire sent the licensor a notice of termination invoking its contractual breaches in the form of the contract.

However, the concessionaire had, prior to the notice of termination, sent the licensor an email dated September 16, 2021 under the terms of which it informed him of the finding that the pace of the network was slowed down and that it expected announcements of improvement. The concessionaire argued before the Court of Appeal that this letter should be interpreted as a formal notice.

However, the court considers that this email cannot constitute a formal notice either in form or in substance.

On the form, the court recalls that the contract provides that the formal notice prior to notification must take the forms precisely stipulated therein, and is only valid if it is a registered letter with acknowledgment of receipt, a letter delivered by hand against receipt, signed by a representative of one of the parties or an email or fax confirmed by registered letter with acknowledgment of receipt sent on the same date.

In this case, the email does not comply with any of these forms. It could not therefore be considered a formal notice.

On the merits of the email, the court also recalls the content of Article 1344 of the Civil Code which provides that “The debtor is given formal notice to pay either by a summons or a sufficient interpellation act, or, if the contract so provides, by the sole enforceability of the obligation.“.

It notes in this respect that the disputed email does not define any non-performance in relation to the clauses of the contract, and therefore does not constitute a sufficient interpellation to constitute a formal notice.

The court further notes that if the letter gives the grantor a deadline for performance, it only sets the date of termination, and therefore does not show the willingness of the concessionaire to obtain the performance of these obligations.

In view of these elements, in the absence of formal notice in accordance with the provisions of the contract, the court finds that the termination carried out by the concessionaire is abusive.

Failure to comply with the provisions of the Civil Code

The dealer also invoked termination at its own risk due to a serious and repeated breach of the essential clauses of the contract, and in particular a lack of assistance.

The court recalls the provisions of Articles 1224 and 1226 of the Civil Code. It notes that the licensor justifies, with regard to the assistance – and taking into account the health context – the organization of videoconference meetings and numerous exchanges on WhatsApp.

The court notes that in any event, this obligation was not essential in a concession contract.

Since the concessionaire did not demonstrate the existence of an emergency, the impossibility of executing the contract, or the fact that the alleged non-performance was irremediable, the Paris Court of Appeal ruled that the said contract had terminated in an abusive manner.